Dispatches from the Front: How a Bottom Gets Formed
-Wrong!
Aug 06, 1998
By James J. Cramer
At 3:31 p.m. you could have heard a pin drop. Everything was quiet at Cramer Berkowitz. The plummeting market at last looked headed for oblivion. Three huge sellers had been trying to get out of America Online (NYSE:AOL - news) , as if what they had heard the night before on the conference call was bad, not good. Dell (Nasdaq:DELL - news) had just dropped five points, in what looked to be crossed markets -- sellers wanted to sell below where buyers were willing to pay. The Dow kept its steady, no-parachute dive, through every level imaginable.
My wife, Karen, sitting next to me, watching the action, breaks the silence. "Well, you better buy something, because this is as bad as it gets."
Buy what? I said. "And be down two points by the time I get the report? You know what these sell programs are like."
"Then go buy some America Online. Weren't you the guy telling me they could have explosive earnings next year? Didn't you just say that five hours ago?"
Yeah, I said it, but that was a lifetime ago. "I'll buy it if you don't," she said.
So we bought some Online. We nibbled at a little Dell. Chummed for some Compaq (NYSE:CPQ - news) and Intel (Nasdaq:INTC - news) .
Not much.
And then the program hit. We will never know who had the program. It was triggered, apparently, by the 10% decline, or the retest of the S&P low, or just plain old manipulation -- someone was covering a short and then went long in a way that had to move the market rapidly in the direction that was wanted. (Yes, programs and futures can be that powerful, as we know from the years when they moved the markets higher.) It was frenzied, like when you hit a school of blues. If your hook was in the water, they hit you. But if you tried to chase, forget about it. As was the case most of the day, your screens were running late.
I tried to buy some Fannie Mae (NYSE:FNM - news) at 58.5 but didn't land it until 59. I sought 5,000 IBM (NYSE:IBM - news) like a madman up a dollar to no avail. (If you don't use limit orders in this market, you are a dead man, at the mercy of the market makers.) The stuff we bought at my wife's suggestion? We were up six points on almost all of it within 10 minutes.
The program moved the market up to the higher collar, the plus 50, and then anyone who bought had moved too late. You had to have bought at the worst moment possible.
You could feel the whipsaw of the neck of the guy who was trying to sell something at 3:29, in the midst of the program. I had been down to sell 10,000 Wal-Mart (NYSE:WMT - news) at 58 at 3:29. By the time I got my report the stock was at 61.
It was confusing, unnerving and thoroughly predictable. Everyone had finally given up, at least at that moment, at that snapshot of the market. There were NO bulls and no believers. Forget the bull-bear ratio. Forget Abby Joseph Cohen. At that moment in time you had to be a hero or a nut to go long.
Guess that's how bottoms are formed.
James J. Cramer is manager of a hedge fund and co-chairman of TheStreet.com. At the time of publication his fund was long America Online, Compaq, Dell, Fannie Mae, IBM and Intel, though positions can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column by sending a letter to TheStreet.com at letters@thestreet.com.
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